There is a part of the Federal estate and gift tax laws that most are not aware of and don’t take advantage of. Portability and affects many estates which would not otherwise be concerned about estate and gift taxes.

In short, portability allows any unused portion of the first spouse’s exclusion amount to be transferred to the surviving spouse. The estate and gift tax exclusion is the total amount an individual can give away during their life and at their death without incurring any gift or estate tax.

The surviving spouse can then add that amount to his or her own exemption amount, preserving the ability of the couple, as a unit, to fully use their combined exclusion amount to pass on assets to their heirs and other beneficiaries tax free.

To make the portability election, the Executor or Administrator of the estate of the first spouse to die must file an estate tax return (Form 706) on behalf of the estate. This is true even if the estate would not otherwise have to file a return. This must be done within nine months of the first spouse’s death unless a special extension applies.

There are a number of issues to be considered when determining whether to make the portability election in any estate and these will differ from one estate to another based on the particular facts and circumstances involved.

In general, you will need to determine whether the benefits of making the election outweigh the costs, such as the cost of preparing an estate tax return which can be significant, and whether those benefits and costs line up with the deceased spouse’s wishes.

Also, keep in mind that the Executor must serve the interests of many parties, not just the interest of the surviving spouse.

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Estate Planning and Administration